The refusal last month by Michael Cherkasky, chief executive of Marsh & McLennan, to comment on plans to sell Putnam, the US financial services groupâs fund management unit, spoke volumes.

Cherkasky is facing calls from shareholders to break up the group after its shares hit lows not seen since 2004 when its insurance broker subsidiary was embroiled in allegations of bid rigging and price fixing.
An industry source said Marsh had appointed Goldman Sachs to find a way out for Putnam. Marsh declined to comment.
One former employee said Marsh had discussions last year about selling its Boston-based fund manager and had appointed advisers before dropping the idea. “Shareholders, especially hedge funds and deep value players, have become weary and it looks like a break-up is back on the agenda this year,” he said.
Deutsche Bank analyst Alain Karaoglan said a break-up or a sale of the group was more likely the longer the share price stayed at its $25 level. He said: “Given where the stock has been and given the surprises we have seen this year from corporate investigator subsidiary Kroll and Putnam, wouldn’t it be better to break up the group?”
Karaoglan said there would be no shortage of interest from private equity buyers and banks that want to expand their operations if Putnam was put up for sale.
Sources close to Marsh believe the group is likely to favour an initial public offering over a management buyout. If Marsh sold the subsidiary it acquired in 1970 for $30m (€23m), the insurance broker would face a high capital gains tax bill.
A former employee said: “A spin-out would be much more practical for Marsh.”
Analysts believe a spin-off of Putnam could trigger the unravelling of the group, which includes Marsh insurance brokerage, Guy Carpenter reinsurance broking, Mercer consulting and Kroll.
Marsh last year sold MMC Capital, the private equity subsidiary, to its management team. The firm was renamed Stone Point Capital and specialises in investments in the insurance and financial services industries. Cherkasky said the new structure would remove the appearance of any conflicts of interest between the parent and MMC Capital.
Putnam Investments, founded in 1937, is one of the oldest US money managers. It has its roots in the 19th century when clipper ship captains hired trustees to manage their money while they were at sea. George Putnam, who set up the company, was the great-great-grandson of Samuel Putnam, a Massachusetts Supreme Court justice, who established the Prudent Man Rule, a legal foundation for responsible money management. Putnam believed every investor could benefit from the guidance of an experienced adviser.
But years of underperformance and its involvement in the mutual fund trading scandal meant investors have withdrawn almost $100bn from its mutual funds since 2001, according to consultancy Financial Research. Putnam agreed to pay $193.5m of penalties in 2004 stemming from probes into irregular fund trading by the US Securities and Exchange Commission and William Galvin, Massachusetts Secretary of the Commonwealth.
Putnam’s assets fell $9bn to $180bn in the second quarter, its lowest level in more than nine years. Net redemptions were $6bn, which included $2.8bn from the ending of Putnam’s alliance with its Australian partner. Revenue fell 10% from $377m a year ago to $339m.
Institutional net flows were positive in the first quarter, according to Deutsche Bank. Management cited the pick-up in new business mandates, the introduction of mutual fund products and alliances in Japan, Europe and Australia as reasons for a stabilisation in asset flows in the first quarter. Putnam’s asset mix comprises $119bn in mutual fund assets and $61bn in institutional assets.
Cherkasky admitted outflows would continue from the asset management unit until the end of this year but said institutional fund flows would turn positive by the third quarter.
A Putnam source said: “Performance is coming back. It’s not on top in aggregate terms but has moved from the bottom to somewhere in the middle.”
Laura Lutton, a Morningstar analyst who covers Putnam, said some funds were improving but the firm was blighted by the performance of its two flagship funds. She said: “A lot of shareholders are affected by how the flagship funds are doing.”
The growth and income fund has halved from $21bn in assets in 1999 to $11.4bn this year. Its return of 3.3% this year leaves its ranking in the bottom decile.
Putnam’s voyager fund has plummeted from $25bn in assets in 1999 to $5.5bn at the end of June. According to Morningstar, its return this year is -6.3%, putting its ranking at the 84th percentile. The fund showed signs of recovery after Robert Ginsburg and Kelly Morgan replaced Brian O’Toole 15 months ago, but has since tailed off.
Morningstar said Putnam’s new value fund, under the management of David King, has done well over the past decade. The large-cap investors’ fund has also outperformed in recent years. Over five years, it has returned 3.22% against a S&P 500 return of -0.8%. Putnam’s move to twin quantitative with traditional managers to extract better performance is also believed to be working.
Lutton’s main concern is the support received by managers from analysts who are an integral part of the collaborative approach to investing. Putnam’s analyst fund has failed to beat the S&P 500 index over each of the past five years, she said.
Unlike Fidelity, which sells funds directly to the public, Putnam’s funds are sold through brokers and investment advisers. They do not have sufficient confidence in Putnam to recommend its funds to their clients. Karaoglan said Putnam was struggling to win support from advisers because of the hammering its reputation has taken since the mutual funds scandal.
Ed Haldeman, chief executive of Putnam, this year started to allow fund managers to work abroad for the first time. Simon Davis, an Asian equity manager, and Anton Simon, who is in charge of high-yield bonds, work in London. However, two lead managers in European equities, Mark Pollard and Heather Arnold, who were based in London, left this year.
Putnam won a US and a global fixed income mandate from the Norwegian government fund, formerly known as the petroleum fund, last month, although it was axed from a £144m (€213m) passive US mandate by Staffordshire county council’s pension fund in February.